As one reader asks: Compare Small Cap Mutual Fund and Nifty Midcap 150 TRI. Can you please explain why you do this? ”
Suppose the Indian cricket team played 15 matches in about half a year, including all formats. they won them all. For example, no other team has ever done it. Will it make the Indian team the best ever?
it’s not. We’ll have to stop and see who their opponents were. For example, do you think the Indian team is the best even if 70% of his opponents were non-playtest teams?Or the “main team” is yet to come so the real test will be held again do you feel?
The situation for small-cap funds is very similar. The actively managed small cap mutual fund is one of the highest paying funds on the market. Most of them can beat the small cap index frequently. But it’s like scoring centuries only against minnows and claiming I’m the best in the industry.
To see what I mean, let’s compare the rolling returns of the Nifty Smallcap 250 TRI, the Nifty Midcap 150TRI, the Nifty Midcap 150 Quality 50 TRI, and the Nifty Next 50 TRI. There are currently index funds available for all indices.
5 years
10 years
15 years
The Nifty Smallcap 250 TRI has Always come last! It’s hard to put money in a small-cap index, even if you recognize that the history of 10 or 15 years is short.
So it’s not that big of a win for an active small-cap fund to beat backventure. Why pay so much when there are cheaper options like Nifty Next 50, Midcap Quality 50 and even Midcap 150 (despite tracking errors)? That’s why we insist on comparing it to the Nifty Next 50.
The bad news is that most small cap funds don’t perform well against these indices!
As such, we recommend avoiding small-cap mutual funds, especially SIPs. If you can’t stay away from them, consider a tactical approach: don’t use SIP for small cap mutual funds: try this instead!
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Dr. M. Pattabiraman(PhD) is the founder, editor-in-chief and principal author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 9 years of experience in publishing news analysis, research and financial product development.connect with him via twitter Also link in Also Youtube. Pattabiraman has co-authored three printed books: (1) Goal-based investing can get you rich (CNBC TV18) For DIY investors. (2) game changer for young people breadwinner. (3) Chinchu got a supernatural power! for children.he also wrote 7 others free e-book Various money management topics. He is a patron and co-founder of “.commission only india,An organization dedicated to promoting impartial, fee-free investment advice.
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